LECTURE NOTES: CASH AND CASH EQUIVALENTS

Considerations in reporting cash balance

1 Foreign currency
> should be translated to Philippine currency
> unrestricted - included in "cash"
restricted - noncurrent asset
2 Cash in closed banks or banks having difficulty/bankruptcy
> reclassified as Receivable and written down to its recoverable value
3 Customer's postdated checks and NSF checks and IOUs/DAIF/DAUD
> reported as receivable
4 Expenses Advances such as advances for employee travel and postage stamps
> reported as prepaid expenses
5 Bank Overdraft
> reported as current liability; except if there is another account in the same b
which it can be offset
6 Undelivered or unreleased checks
> should be reverted to cash and the liability that the check is intended to liqu
still exist and be reported to current payable
7 Company's postdated checks
> reverted to cash since no actual payment yet
8 Compensating balances
> unrestricted - included in "cash"
restricted - either current asset or noncurrent asset depending on the natur
9 Cash set aside for long term specific purpose such as bond sinking fund and plant expansion fund
> reported as non current financial asset
10 Customer's postdated checks
> reported as receivable

Cash Count Problems

1 Identify the accountability first:
a. If petty cash fund, the accountability is the imprest balance
b. If undeposited collections, the accountability is totalundeposited collections per books/records ad
further for any unrecorded collections (based on additional information of the problem)
* if there is no direct information about collections per records, accountability is collections per O
cash receipts vouchers or other documents evidencing collections
2 Identify valid supports to the accountability as presented in the problem
a. Petty Cash Fund
> bills and coins, replenished checks, valid accomodation checks
> unreplenished petty cash expense vouchers (adjusted to various expense)
> Employees IOUs (adjusted to receivables)
> post dated/NSF checks (adjusted to receivables)
* unused postage is not valid support when the accountability is the petty cash fund
* return of an expense advances (e.g., excess from the travel advances) is added to the account
to get the total accountability and not added to valid support.
b. Undeposited collections
> bills and coins
> customers' collections checks (not technically defective)
> copies of expense vouchers evidencing the use of the collections to pay certain expenses
> unused postage stamps (valid support which accountability is undeposited collections)

Additional Note:
In the absence of specific term, money market placement, time deposit and treasury bills are
investment of three months or less and therefore qualify as cash equivalents.
Furthermore don't be confused when the problem states like this:
On December 31, 2012, AA Company had the following cash balances
Cash in bank (600k is legally restricted)
petty cash fund (all funds were reimbursed on dec. 31, 2012)
time deposit (due february 1, 2013)
Solution:
cash in bank (1,800,000 - 600,000)
petty cash fund
time deposit

1,200,000
50,000
250,000
1,500,000

* the term of the time deposit is not given. It is assumed that it is three months or less,this being the
normal banking practice.

verable value

account in the same bank

eck is intended to liquidate

pending on the nature of loan

nt expansion fund

per books/records adjusted

he problem)
ity is collections per OR,

cash fund
added to the accountability

ay certain expenses
sited collections)

treasury bills are short term

lents.

1,800,000
50,000
250,000

or less,this being the

LECTURE NOTES: BANK RECONCILIATION

Bank Reconciliation - necessary only for demand deposit or checking account
Point of View of:

Debit
Credit

Depositor
Increase (asset)
Decrease (asset)

Reconciling Items
1 Book Reconciling items
a. Credit Memos
b. Debit Memos
c. Errors
2 Bank reconciling items
a. Deposit in transit
b. Outstanding checks
c. Errors

Debit
Credit

Effect in book balance

Book is understated since it is not yet recorded in books
Book is overstated since it is not yet recorded in books

Effect in bank balance

Bank is understated since it is not yet deposited
Bank is overstated since check is not yet presented

Adjusted Balance Method

Book Balance or Balance per book (b)
Add: Credit memos
Less: Debit Memos
Adjusted book balance (c)

*a
*a-b

Bank
Decrease (asset)
Increase (asset)

xxx
xxx
(xxx)
xxx

Bank Balance or Balance per bank

Add: deposit in transit
Less: outstanding checks
Adjusted bank balance

> the adjusted balance per bank shall be the correct cash balance
> the net adjustment to cash shall be the difference between the unadjusted per book and
adjusted per bank

*a-c

> the cash shortage/overage shall be the difference between the twoadjusted balances
shortage if : Bank < Book
overage if:

Bank > Book

in books
n books

Adjustment
+
plus or minus
Adjustment
+
plus or minus

Balance per bank

ransit
g checks
alance (a)

adjusted per book and

oadjusted balances

xxx
xxx
(xxx)
xxx

LECTURE NOTE: PROOF OF CASH

Unadjusted balance per bank
Deposit in transit, beg
end
Outstanding checks, beg
end
Bank errors (receipts, beg is over)
(receipts, beg is under)
(disbursements, beg is over)
(disbursements, beg is under)
( receipts, end is over)
( receipts, end is under)
(disbursements, end is over)
(disbursements, end is under)
Adjusted balance

Unadjusted balance per book

Unrecorded credit, beg
end
Unrecorded debit, beg
end
NSF checks, beg
NSF checks, end
NSF check received and redeposited the same period (not recorded by book*)
Book errors (receipts, beg is over)
(receipts, beg is under)
(disbursements, beg is over)
(disbursements, beg is under)
( receipts, end is over)
( receipts, end is under)
(disbursements, end is over)
(disbursements, end is under)
Adjusted balance

Beg
xxx
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)

xxx
Beg
xxx
xxx
(xxx)
(xxx)

(xxx)
xxx
xxx
(xxx)

xxx

Receipts Disbursements
xxx
xxx
(xxx)
xxx
(xxx)
xxx
(xxx)
(xxx)
(xxx)
(xxx)
(xxx)
xxx
(xxx)
xxx
xxx
xxx
Receipts Disbursements
xxx
xxx
(xxx)
xxx
(xxx)
xxx
(xxx)
xxx
xxx
xxx
(xxx)
(xxx)
(xxx)
(xxx)
(xxx)
xxx
(xxx)
xxx
xxx
xxx

* an NSF check received from the bank and redeposited during the same period shall no longer be included in the proof of cash
statement not unless the same was not recorded by the book, thus the same is added to both the receipt and disbursemnet columns

kapag nag add sa beg, magbabawas sa receipts

kapag nagsubtract sa beg, subtract disbursement

End
xxx
xxx
(xxx)
receipts ng december napunta sa november
receipta ng nov napunta sa dec
nagbayad ka ng ap noong dec pero narecord nung nov
(xxx)
xxx
xxx
(xxx)
xxx
End
xxx
xxx
(xxx)
(xxx)

(xxx)
xxx
xxx
(xxx)
xxx

columns

sobra ung binawas kaya kulang ung beg, at sobra ung receipt mo ngaun. ung sobrang diabursement bung nov naoadjust ng dec kaya dun da

dec kaya dun dapat ibawas sa rec dec